PAYE and NI

Whether an individual is an employee or self-employed in a particular situation is a question of fact depending on the terms under which he or she works. When you engage someone to do work for you, you have to decide whether or not to apply the PAYE rules. It is up to you to get it right or suffer the consequences.

In an environment where most employee 'perks' are subject to tax it may be helpful for you as an employer to be aware of the few concessions that have been made by HM Revenue & Customs.

Forms P14, P35, P38 and P38A - These forms are due to be filed by 19 May each year. If not filed on time a fine of up to £1,200 per 50 employees. This penalty may be reduced dependent on the circumstances.

Details of class 1, class 1A, dividends instead of salary and action to save NICs.

Benefits in kind are assessed on all directors and employees whose salary and benefits combined are £8,500 or more. Remuneration by way of benefits is often attractive to employees, especially if they are paying the higher rate of income tax, because the benefit may either be tax free or subject to less tax.

However confident you are that your records are complete and well maintained, a PAYE / NIC inspection might still catch you unawares. Here are some pointers to help you.

These tax credits replaced Working Families' Tax Credit, Disabled Person's Tax Credit and Children's Tax Credit and the child-related elements of Income Support and Jobseeker's Allowance. These run until 2014 for existing claimants.

The legislation known as IR35 is intended to tackle the avoidance of tax and national insurance contributions through the use of intermediaries such as service companies or partnerships.

These plans provide three core elements which can be combined by companies in a number of ways depending on what best suits their business (limits are per employee).